In a world that is only beginning to emerge from the COVID-19 slumber, there is a sense of awareness which made its way into mainstream thinking: governments, businesses, communities, and each of us have a responsibility to care for the general wellbeing of others. Small and mid-sized companies are part of this mix. Depending on the regional context and definitions, these firms range from 10-500 employees. They are the backbone of our economies, accounting for an estimated 95% of companies and representing over 60% of employment globally. During a period of major transformation, these companies must reach their potential as a pillar of sustainable growth in our communities.
The Rise of ESG Larger corporate and financial institutions are now adopting environmental, social, and governance (ESG) measures within their business and capital allocation practices to pave the way for the new economy. Today, over 250 banks have signed the Principles for Responsible Banking and over 4000 asset and investment managers have signed the Principles for Responsible Investing. For banks, one of the core tenants of responsibility is to support their clients to become sustainable, reduce emissions, and account for social wellbeing. What’s more, investments and capital are flowing towards companies who can articulate these strategies and solicit higher ESG ratings, which are often limited to only larger companies. These larger corporations are therefore reaping the benefits, equipped with the resources to understand what's changed and accounting for material sustainability topics in line with the latest standards for materiality. The concept lies in traditional accounting practices for disclosing material information to investors and shareholders. Today, double and dynamic materiality are becoming the norm even in the public sector, which means a company must asks itself and others with a stake in its business:
Where do I have the greatest impact socially and environmentally, positive and negative?
What poses the greatest risk to my business economically, from a social, environmental, and governance standpoint?
What's changed since the last time I asked?
Impact of COVID-19 on SMEs
Where does this leave the smaller and mid-sized companies most affected by the global pandemic? When it comes to crisis, it is no news that the most vulnerable always suffer the most. Marginalized populations, developing nations, and the poor get a disproportionate share of economic and general wellbeing devastation during conflict, crisis, war, or climate change. On the other hand, wealthy individuals, corporations, and communities fare better during turmoil – regardless of extreme weather, financial collapse, or a health pandemic. As the world of finance and large business evolves to embed sustainability as a core tenant for ongoing scale, there is a risk that smaller companies, once again, lose out.
Going Beyond Mainstream Sustainability In this way to think about sustainability and ESG, with both a risk and impact lens, reporting is just one of the many elements of integration. Sustainability reporting has been around for a long time, but change begins with a renewed understanding of why it is needed in the first place, what has changed, and how the company should evolve from a sense of strategic purpose and direction.
Material topics for different sectors vary, yet, many are common across sectors. For instance, banks need to begin disclosing their financed emissions, meaning small and mid-sized organizations (SMEs) too need to plan their path to reduce carbon emissions and design pathways to decarbonize their operations. This in turn can lead to preferred loans and interest rates as well as cost savings.
Inclusion, diversity, belonging and mental health have also risen to the top of the priority list for many companies, along with ethical decision-making and governance. Those with heavy supply chains will also need to consider human rights protocols, potential climate and global stability risks, and emissions profiles as they further evaluate trade-offs across these supply chains.
Yet, while governments increase sustainability mandates, regulation mounts, and business commitments to decarbonization rise exponential, emissions continue to rise worldwide. And climate is just the tip of the iceberg, housing a much deeper set of issues around how deeply interconnected social welfare, economic, environmental, and individual wellbeing are. To address these deeper interconnected issues, we must begin on a more granular level, and ask ourselves what really matters both within an organization, community, and on a very personal level? And then, how do we align?
The Missing Piece: Some Topics Affect All If future generations matter at all to us, we must acknowledge that they do not want to work for companies that say one thing and do another. The youth care about the planet, know it is at risk, and have access to more knowledge and fake news than ever before. They collapse under the stress of a logically and generationally induced eco-anxiety, and are under the competitiveness of a “developed" society mindset to attend the best schools, get the best grades, and all so that they can achieve the promise of the so-called dream of great wealth and prosperity - which appears less dreamy by the moment as the societal and environmental fabric that allows for long-term stability begins to disintegrate.
It is no surprise that with COVID-19 limiting our time and forcing us to sit at home and reflect, that these vulnerabilities become exposed in a grand manner.
When it comes to exposure, it appears that some common denominator challenges do not discriminate as much as others.
For instance, while large corporations and wealthier regions generally fare better economically in times of crisis, mental health seems to discriminate less so. Youth and even adult depression and anxiety were on the rise in the most “developed” societies prior to the pandemic. A recent study from the Journal of Applied Psychology also showed that individuals with higher levels of income have greater decreases in life satisfaction than those with lower incomes. The pandemic may well have simply exposed another pandemic which has been brewing all along: that of an increasingly mentally troubled society.
With respect to climate, while the near-term effects are indeed disproportionately affecting those most vulnerable, in the long-term, the inability to course-correct the current emissions trajectory is touted as the greatest risk to humanity as a whole.
The trade-offs between short-term priorities and long-term calamities are not easy to navigate, requiring an entirely new way of understanding and enabling decisions within organizations, small or large.
The Inflection Point: An Opportunity to Lead Change And so here we are, at an inflection point, free to decide which way to go, how to be better for ourselves and for future generations. Several large companies have now moved beyond sustainability reports while conducting business-as-usual without an acknowledgment of the harm done from their products and services. For small and mid-sized enterprises (SMEs), the opportunity to be at the forefront of this transformation should not be lost. As sustainability fosters more equitable redistribution capital towards economics, social and environmental benefits, smaller businesses have a unique opportunity to be a part of this equation.
Why? SMEs are less encumbered by legacy processes and systems, and can move more rapidly. Change is hard and slow, but it starts with a simple will to make a difference. Large corporations driven by regulatory and shareholder pressures will of course adapt, but culture is much more difficult to reshape when it requires a complete rewiring of the leadership DNA and governance models. SMEs have the opportunity ahead of them, to lead, to follow, or to be left behind.
A Look into the Post Pandemic World As companies emerge from the pandemic, they can think through the why, what, where and how, making sustainability a core tenant of their own transformation. Businesses that embedded digital ways of working, allowed work-from-home flexibility, and other new ways of working saw immediate benefits during COVID-19. In this next transformation, having a clear lens on what matters in your company, in addition to your profit line, and what is changing in the external and internal context, can re-energize your team and give your company the push it needs to better manage risk, built resilience, and grow sustainably in the face of future uncertainty.
Today, a coherent plan is key to achieving your goals and reporting on what matters to your organization. Not only do companies that embed sustainability in their business models see employee productivity and engagement rise, they also build group flow, morale, and gain clarity on how each member works together to achieve a collective goal. This approach also ties personal values to team objectives. Leaders who lead with spirit and purpose are authentic, resilient in times of change, and bring others along.
Regardless of whether you are a leader within your organization, an influencer or an employee, you can use this global pause to begin asking what matters to you and to your organization, what the goals are, and how you can contribute meaningfully.
Some questions for personal or organizational reflection:
What does your organization value most? What do you value?
To what extent does your organization align with those values?
Within the environmental and societal spheres, can you or your business have the greatest positive impact? Where are the negative impacts?
Within those areas, where do your skills and capabilities best line up to drive change in line with your values?
How can you best align your skills with the opportunities for value creation opportunity you’ve identified above?
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